Hungary Information Technology Report Q1 2011

While Hungary exited recession in 2010, local IT spending is forecast to grow modestly in 2011 against the backdrop of a still-difficult domestic political and economic situation. Total spending on IT productsand services in 2011 is projected at around US$3.0bn, up around 4% compared with the country’s ITbudget in 2010.

Industry Development IT spending in Hungary will continue to receive momentum from a number of programmes to assimilateHungary into the EU’s broader ‘Information Society’. The government’s second National DevelopmentPlan provides the framework for the use of US$28.8bn from the EU’s structural and cohesion funds forthe 2007-2013 period. The Hungarian Association of IT Companies is hopeful that a new influx of EUfunds will help stimulate a recovery in public sector IT spending.

One key policy area for structural funds is health. The National Development Plan has committed EUR1.7bn for the development of the health sector. The government has completed the first phase of apilot project to improve exchange of information among hospital outpatient clinics and generalpractitioners (GPs) in one of the least developed regions of Hungary.

Competitive Landscape Despite the current economic situation, fellow global IT services giant IBM has continued to invest inHungary. In September 2010, IBM announced a new Budapest-based centre for analytics. The companyhas targeted US$16bn in business analytics and optimisation revenues by 2015, and plans new analyticssolutions centres in a number of other locations, including Vienna and Zurich.

In May 2010, fellow US IT giant HP introduced an expanded set of consulting services specifically for telecoms companies. At the same time, the company announced a recent customer win atHungary’s leading telecoms company Magyar Telekom. Magyar engaged HP to develop a single,consolidated platform for Magyar to automate key processes and workflows. The solution was firstdeployed for new IP services and Magyar now plans to extend it to the rest of its services portfolio.In July 2010, Magyar Telekom said that it had signed an agreement to buy 100% of Hungarian ITcompany Daten Kontor Group (DK Group.) DK Group develops, installs and manages IT applications,and Magyar Telekom hopes that the acquisition of the HUF2.2bn turnover company, which was stillsubject to regulatory approval, will help it to strengthen its position in the IT services market.

Computer Sales Hungary’s computer hardware market is estimated at around US$1.3bn in 2011, with notebooksaccounting for more than half of sales. Revenues are expected to reach US$1.6bn by 2015, growing at a2011-2015 compound annual growth rate (CAGR) of 7.4%.The popularity of relatively inexpensivenetbooks helped to prevent a steep shipments deceleration during the recession, while acting to deflateaverage prices.

In H110, retail sales grew slowly, even as businesses remained cautious, with most growth expected in the second half of the year. The median expectation is probably one of moderate growth driven mainly bynotebooks. Meanwhile, 2010 also saw the emergence of tablet notebooks, spearheaded by Apple’s iPad.

Software The Hungarian addressable software market is projected by BMI at US$729mn in 2011 and is expectedto grow at a CAGR of 9.9% over BMI’s five-year forecast period. In 2010, the economic slowdownrepresented a challenge to software vendors, as enterprises were tempted to focus more on the bottomline. Business confidence had slumped to record lows in February 2009, depressing investment.

State support will be important in sustaining investment. The large company sector is relatively saturated in terms of basic applications such as enterprise resource planning (ERP) systems. However,opportunities exist to sell upgrades or more specialised applications such as customer relationshipmanagement (CRM), human resources (HR) and business intelligence.

There is an increased focus ondeveloping applications tailored for specific industry verticals, with the largest opportunity being in thebanking and financial sectors. Key opportunities are also likely to be found in the small and mediumsizedenterprise (SME) and public sectors, where spending is lower than many other countries in theregion.

IT Services The Hungarian IT services market is expected to be worth around US$1.5bn by 2015, up from anestimated US$1.0bn in 2011, with services accounting for more than one-third of IT spending in Hungaryas the market matures. The IT services market was expected to experience flat modest growth in 2010, asHungarian organisations scaled back projects as a result of the continued economic uncertainty. Themarket was also hit by the slowdown in government IT projects tendering, with just 5% growth projectedfor 2010, following low single-digit growth in 2009.

In the medium term, EU accession and the continuing advancement of technology mean more and more companies (and government departments) will turn to outside experts to handle the complexities of theemerging IT environment. There remain a number of projects in the pipeline in areas such as healthcare,utilities and government procurement.

E-Readiness A 2007 EU report on e-government development in Hungary found good progress generally in frontofficeprocedures, but less so in back-office ones.

The government is now implementing what it refers to as the ‘fifth level’ of e-government development, which involves the targeted providing of proactive automated services. By the end of 2006, thepercentage of government services fully available online was deemed to have reached 50%, close to theEU average. Hungary also moved from 23rd to 14th place in the EU rankings for e-government, as some48% of citizens contacted some form of government institution online, mainly to obtain information.

Recent surveys have highlighted that the elderly and those living in rural areas are at the core of Hungary’s digital divide. While Hungary has low internet penetration overall by European standards, amassive 84% of Hungarians between the ages of 55 and 74 are computer illiterate and policymakers fearthat this could lead to increasing social isolation.

Hungarian IT spending should have received strong momentum from Hungary’s EU accession in 2004, but due to a weak economy and fiscal austerity measures, public spending in particular has fallen short ofexpectations. Trading conditions remain challenging for IT vendors in 2011 as household demand,business investment and government spending will remain muted due to deleveraging and fiscalausterity.

Meanwhile banking credit will remain limited.The IT market is expected by BMI to increase toUS$4.2bn in 2015. Despite current economic headwinds, BMI still expects growth in some IT marketsegments over the next few years, with EU funds supporting new public sector IT initiatives, andopportunities around outsourcing and cloud computing. However, much will depend on the speed ofeconomic recovery, both in Hungary and globally.

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